We Can’t Start Until We Finish

Article by Billy Procida, President of Procida Funding & Advisors      

Hopefully, you have read part one of this article published in 2010, or its predecessor “Coming of the Half Builts,” published in 2006.

If you followed its suggestions you don’t own either side (the fee or the loan) of a half built.

If you are still embroiled in messy litigation, foreclosure or bankruptcy proceedings I’ll share some thoughts for your consideration.

First, lets understand the impact half builts have on the overall economy and neighborhoods in which they exist.

There are tens of thousands of half built projects throughout America. They impact the quality of life of everyone who lives or works near them.

They also have a powerful impact on the “psyche” of the market and not in a good or positive way. People living next to one have it worst.

The poor family living next to one on of these things who’s paying their mortgage really gets the short end of the stick.

Besides having to look at it, which often means graffiti, ugly construction fencing, scarred earth, etc., if forced to sell their house, how do they do it? It’s amazing there aren’t more class action suits against banks, builders and municipalities for letting this happen. Fortunately for the industry, the little guy doesn’t have the wherewithal to initiate such a suit and the ambulance chasing class action lawyers haven’t figured it out…yet.

As for the overall economy, it’s no secret we need a robust new housing market to cause all those homeowners to buy furniture and all the goods that go into a new house as well as all the jobs it creates. In order for our industry to get the machine going, we must first finish all the buildings we started.

I hate to say its un-American to sit on a half built, but I think from my perspective, it is. That goes for both the bank and the borrower. It takes both of you to clear the way.

So, if you are still involved with one of these or in a piece of land that was readied for development in the last cycle, you’ve spent a lot of money on lawyers, which is unrecoverable, and a lot on property taxes and insurance that’s unrecoverable, the lender and borrower are hating each other, the neighbors are miserable and the lawyers are saying don’t worry it’ll be over soon.

One thing about the foreclosure process, while it does have an end, it seems to never come and all the while, the asset is deteriorating, the expenses are accumulating and you get the rest.

Suggestion 1: Take all involved and lock yourselves in a room with no one allowed to leave until it’s resolved.

Suggestion 2: I would say see suggestion 1 but with a twist. Since the guys and gals that have battled the last two years haven’t been able to get a solution, have a new representative from all involved (preferably without lawyers) get locked in a room with a directive from their bosses to get the situation resolved.

These resolutions will revolve around two basic things: Either the lender is offering the borrower money, forgiveness on a guarantee or a role in finishing, or the borrower is offering the bank a discounted pay off sometimes with a back ended kicker.

I assure you after 29 years of doing this, settlement and cooperation is critical and the best path for all involved, which of course includes the neighborhood and the economy.

While your settling and litigating your ‘child’ (the collateral needs supervision and probably enhancement), you need to locate all critical documents.

If you have not personally reviewed the certificate of occupancy checklist in the municipality that your asset resides, do yourself a favor: Look at it close and drill down.

When the building department says you need a plumbing and electrical or fire department inspection, see what those checklist look like.

I’m sure it will send the less seasoned folks into a panic. After all these years, I still look at certificate of occupancy checklist and want to pull my hair out.

Also your asset may have approvals that are for a product of a bygone era. Horizontal developments, particularly need a reevaluation, such as the 5,000 s/f attached home, the 7,000 s/f McMansion on the 1/3-acre lot, or the mega-mall.

Take a hard look at the asset and evaluate what’s right for this and the coming market. (Yes, there is a market coming there always is). Approvals take a year or more even for the most modest changes.

Getting through this is an art not a science. There is no right or wrong, although your lawyers will tell you there is. Just be practical. Partially built assets are bad, period. Let’s rid the country of them like a bad disease, get healthy and move on.